Visa / MasterCard Earnings Preview: Prefer Visa A Bit More, But Sector Fundamentals Intact

Apr.29.13 | About: MasterCard Incorporated (MA)

Although we think of Visa (NYSE:V) and MasterCard (NYSE:MA) as quasi-financial exposure ideas given that credit and credit usage are part and parcel to a healthy economy and are a function of consumers willingness and ability to spend, the fact is Visa and MasterCard are considered "global payments technology" companies, and are really part of the tech sector.

This week, we hear from both companies in terms of their March 2013 quarters.

If you bought the Mastercard IPO in mid-2006 at $45 per share, you would have a 1160% return on your money with MA trading at roughly $525 pre earnings.

If you would have bought Visa's IPO in March 2008 at roughly $55 - $60 per share, you'd have a more modest return on your investment, but you'd still be up 280% in a tough market.

The Durbin Amendment and the curtailing of debit card growth and the resultant fees resulted in a correction for both stocks, but both names have since rebounded and gone on to all-time highs.

There continue to be cross-border issues around fees and such, and some of the inter-quarter data was a little weaker than expected, likely due to higher payroll taxes and slower tax refunds, but that should fade as we move through 2013.

Visa: (V)

When Visa reports fiscal 2nd quarter 2013 on Wednesday, May 1, after the closing bell, consensus analyst expectations per ThomsonReuters are looking for $1.81 in earnings per share (EPS) on $2.85 billion in revenues for expected year-over-year growth of 13% and 11%, respectively.

For full-year 2013, current analyst consensus is looking for $7.34 in EPS on $11.577 billion in revenues for expected growth of 18% and 11% growth, respectively.

Last quarter, V grew revenues and EPS 12% and 23% respectively, as total payment volume grew 8%, 3% debit volume growth with 12% credit volume growth.

According to current analyst estimates, V is expected to grow revenues low to mid teens for the next three years, while EPS is expected to grow mid to high teens over the next 3 years.

V's fiscal 2013 and 2014 EPS estimates have crept steadily higher over the last 12 months, a good sign relative to MA.

Our internal model values V at $180 per share, while Morningstar carries an intrinsic value for V at $130 per share, so if we split the difference, V is thought to be fairly valued about where its is trading.

We won't add any shares ahead of the earnings report.


When MA reports first quarter 2013 before the bell, Wednesday, May 1, analyst consensus is expecting $6.18 on $1.93 billion in revenues for expected year-over-year growth of 15% and 10%, respectively.

For full year 2013, EPS and revenue growth is expected at 16% and 11% respectively.

We currently do not have a model on MA, but Morningstar values MA at $420 per share, so with the stock at $522 per share, MA is trading at a 25% premium to its proposed fair value.

MA's 2013 and 2014 EPS estimates have been fairly stable over the last 12 months, and have not seen the upward revisions that V has, so analysts look to have become slightly more conservative on MA's outlook.


We are only long Visa for clients, but MasterCard, according to the analyst models we've looked at the company seems to have superior returns to Visa in terms of Return on Assets and Return on Equity.

MasterCard's ROE is almost double that of V's, averaging in the 40% range, versus V's 15% - 20% range the last year. MA's transaction and volume growth is also mid-teens versus V's high-single digits.

We are comfortable with our Visa position since the stock has kept pace the with the S&P for 2013, up about 12% as of the today's trading, while MA is up about 9% year-to-date.

Frankly, I think both stocks have shown remarkable resilience given the payroll tax hike in 2013, the slower tax refunds, and the slow-growth economy. Ultimately, as long as the consumer remains in good shape and continues to spend, and the monthly payroll numbers average 150,000 - 200,000 jobs per month, and consumer balance sheets remain in good shape, I'd be willing to buy more of both names on weakness.

Technically, MA should find its first layer of good support between $450 - $475, while Visa should find support between $140 - $150.

Consumer balance sheets have improved greatly since 2008 and the housing collapse. Consumers are far less leveraged and far more liquid today than just 5 years ago.

Disclosure: I am long V. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.